Prince Edward Island 2012 Fall Economic Update

Transcription

1 Prince Edward Island 2012 Fall Economic Update Introduction The following document is an update to the economic situation of the Province of Prince Edward Island since the release of the last provincial budget. This release begins with a discussion of the international and national economic context, and follows with a detailed discussion of the Island s economic indicators, such as the labour force, exports, consumer prices, primary industries, population and construction. All information in this document is current to November 26, Prince Edward Island has been fortunate in its ability to weather the global economic recession. After nine consecutive years of economic growth, the province again posted real gross domestic product (GDP) growth of 1.6 per cent in Growth in 2011 was driven by a 4.2 per cent increase in final domestic demand. Prince Edward Island s real GDP growth was the fastest in the maritime region in Private sector GDP forecasts for 2012 range from a low of 1.1 per cent to a high of 1.8 per cent. International Economy Uncertainty continues to cloud the global economic recovery. Risks, largely centered on the ongoing situation in Europe and the threat of the fiscal cliff in the United States continue to weigh heavily on international economic conditions. According to the International Monetary Fund (IMF), for these risks to be negated, it is necessary that the United States and Europe put forth credible plans for medium-term fiscal consolidation, and stronger integration respectively. According to the IMF, the world economy grew by 3.8 per cent in Global growth will continue to be uneven with advanced economies forecast to grow at 1.3 per cent in 2012, and 1.5 per cent in 2013, and emerging economies forecast to grow at 5.3 per cent in 2012, and 5.6 per cent in 2013, led by strong growth from China and India. Europe Europe is once again in recession. Continued economic and financial instability in the peripheral economies such as Greece, Portugal, Italy and Spain are affecting economies in the core, such as France and Germany. According to the IMF, real GDP is expected to contract 0.4 per cent in 2012, and expand by a moderate 0.2 per cent in Italy and Spain will be particularly negatively affected, with their economies contracting in both years. Germany and France will see their economies expand by 0.9 per cent and 0.1 per cent respectively in 2012 and by 0.9 per cent and 0.4 per cent respectively in Continued de-leveraging, austerity measures, ongoing financial market tensions, and weak consumer demand will continue to place downward pressure on GDP in the months and years to come. Prince Edward Island Fall Economic Update November

2 United States Growth in real GDP in the United States advanced 2.0 per cent in the third quarter of The increase in real GDP is a result of positive contributions from personal consumption expenditures, federal government spending and residential fixed investment. Detracting from GDP in the second quarter were exports, non-residential fixed investment, and private inventory investment. Growth in real GDP in the second quarter was 1.3 per cent. The acceleration in GDP between the second and third quarter is largely a result of an upturn in government spending, a deceleration in imports, and increased growth in personal consumption expenditures. In their October outlook, the IMF projects real GDP in the United States to expand by 2.2 per cent in 2012, and by 2.1 per cent in The employment situation in the United States continues to improve, with the unemployment rate in October at 7.9 per cent, an increase of 0.1 per cent from September. The first eight months of the year had seen the unemployment rate fluctuate within a narrow band of between 8.3 and 8.1 per cent, while September was the first month to see the unemployment rate fall below 8.0 per cent since January of The number of unemployed Americans in October was 12.3 million. The long-term unemployed, those who have been without work for more than 27 weeks, was little changed at 5.0 million, or approximately 40.6 per cent of the total unemployed. Notable employment gains in October were in professional and business services, health care, and retail trade. The mandate of the Federal Open Markets Committee (FOMC) is to foster an environment of maximum employment and price stability. At its October meeting the FOMC indicated that it intended to continue its accommodative policy of purchasing $40 billion of additional mortgage backed securities per month, and indicated that it will continue to monitor economic and financial conditions to determine whether or not the continuation, or expansion, of this program is warranted. The FOMC also indicated that it will continue with its accommodative policy until there is a measurable improvement in the employment situation in the United States. The target for the federal funds rate is unchanged from per cent, and it is anticipated that this will continue to be the case through at least the middle of Canadian Economy Since emerging from recession in the third quarter of 2009, the Canadian Economy has had seven quarters of economic growth, punctuate by one quarter of contraction in the second quarter of 2011, followed by four more quarters of growth. Through the first half of 2012, growth in services was positive, advancing 0.26 per cent, and 0.14 per cent respectively. After contributing positively to economic growth through all of 2011, goods industries detracted from GDP growth in both quarters of 2012, declining 0.05 and 0.03 per cent respectively. In the first quarter of 2012, inventory investment, and business gross fixed capital formation led growth, growing at 0.55 and 0.34 per cent respectively. In the second quarter of 2012, growth was led by exports, growing at 0.3 per cent. Prince Edward Island Fall Economic Update November

3 The Bank of Canada, in its October Monetary Policy Report expects the Canadian economy to continue on its path toward full potential, and return to full capacity by the end of Real GDP growth is projected at 2.2 per cent in 2012, 2.3 per cent in 2013 and 2.4 per cent in According to the Bank of Canada, growth over the forecast period is expected to be driven largely by consumption and investment by businesses on structure and machinery and equipment. As can be seen in the following chart, employment in Canada continues to rise above pre-recession levels. Employment in Canada through October increased 1.0 per cent over the same period in The unemployment rate has averaged 7.3 per cent through October, a decrease of 0.2 percentage points from the same time last year. Employment gains occurred in the goods and service producing sectors, growing 1.7 and 0.8 per cent respectively. Notable job gains throughout this period include educational services, up 5.0 per cent, other services, up 6.0 per cent, other primary industries, up 10.9 per cent, and health care and social assistance, up 1.6 per cent. Job losses occurred in trade, down 1.5 per cent, public administration, down 1.6 per cent, scientific and technical services down 0.3 per cent, finance, insurance and real estate, down 0.3 per cent, and utilities, down 0.6 per cent. Prince Edward Island Fall Economic Update November

4 The consumer price index has increased 1.7 per cent year-to-date through October. Increases occurred across all categories, notably in food, up 2.5 per cent, and transportation, up 2.3 per cent. Core inflation stands at 1.4 per cent year-to-date, below the Bank of Canada s target rate of 2.0 per cent. The Canadian dollar has been consistently trading above 0.90 USD since mid-july During this time period, the dollar has averaged 0.98 USD. In 2012, the Canadian dollar has been trading in a range between 0.96 and 1.03USD. Since the middle of the year there has been a discernable increase in the value of the Canadian dollar, though in recent days, it has come down from its year-to-date high and is presently trading very close to parity. This strength in the Canadian dollar is being partially driven by safe-haven flows, and the effects of global monetary policy. This strength continues to put pressure on the export-oriented sectors of the Canadian economy, as Canadian goods are relatively more expensive. The Bank of Canada, in its latest rate announcement on October 23, 2012 kept the target for the overnight rate at one per cent. The Bank of Canada has not changed its overnight target since September The rationale for keeping the overnight rate at one per cent is that though the economic recovery is proceeding largely as the Bank had outlined in its July Monetary Policy Report, growth is decelerating, with the economic recovery in the United States proceeding slowly, a recession in Europe, and a slowdown in emerging market economies. The Bank of Canada expects the Canadian economy to return to potential, and for inflation to return to the two per cent target over the next twelve months. The Bank indicated that if economic expansion continues, and as excess in the economy is absorbed, some monetary tightening may be in order. This tightening would take place while weighing the impact of both domestic and international developments on the Canadian economy. Monetary policy will continue to be set with the goal of achieving the two per cent inflation target over the medium term. Prince Edward Island Fall Economic Update November

5 Highlights of the Prince Edward Island Economy Provincial GDP advanced 1.6 per cent in Private sector forecasts place 2012 real GDP growth in a range between 1.1 and 1.8 per cent. As a result of increased immigration, Prince Edward Island s population is estimated to be 146,105 as of July 1, This represents a yearly increase of 410 persons, or 0.3 per cent growth since July 1, 2011, the fastest growth in the Atlantic region. The total value of seasonally adjusted retail sales is up 4.5 per cent on a year-to-date basis through September. Employment has averaged 72,500 people through September 2012, an increase of 1.0 per cent from the same period in Capital expenditure intentions are expected to exceed $1.06 billion in The value of non-residential investment on Prince Edward Island has declined 0.6 per cent through the three quarters of 2012 as compared to the same period in Housing starts are up 8.3 per cent through three quarters of 2012 due to increases across all components except apartments. Island potato producers produced 1,131,188 tonnes of potatoes in 2012, an increase of 1.7 per cent from The landed value of the spring lobster fishery increased from $67 million in 2011 to over $101 million in Room night s sold have decreased 1.6 per cent on a year-to-date basis through September, while site night s sold have increased 4.3 per cent. Manufacturing shipments from PEI have increased 6.6 per cent on a year-to-date basis through September, while international exports have increased 25.3 per cent year-to-date through September. Prince Edward Island Fall Economic Update November

6 Provincial Economy Prince Edward Island s economy expanded by 1.6 per cent in This was the fastest growth in the Maritime region. National growth for GDP over this period was 2.6 per cent. Growth was driven by a 4.2 per cent increase in final domestic demand. Gross fixed capital formation increased 15.4 per cent in Business investment in non-residential structures rebounded 46.6 per cent to return to pre-2009 levels, while investment in housing increased 5.9 per cent. Exports declined 1.2 per cent in Private sector forecasts place 2012 real GDP growth in a range between 1.1 and 1.8 per cent. Employment Employment has averaged 72,500 people through October of 2012, an increase of 1.0 per cent from the same period in Employment has increase in both full-time, up 0.2 per cent and part-time, up 4.6 per cent year-to-date. The unemployment rate has averaged 11.3 per cent over this time frame, a decrease of 0.2 percentage points from Employment gains have occurred in both the goods and service producing industries. Notable employment gains have been in health care and social assistance, professional, technical and scientific services, transportation and warehousing, and agriculture. Notable employment losses have occurred in educational services, trade, information, culture and recreation, construction and manufacturing. Prince Edward Island Fall Economic Update November

7 According to the Labour force Survey (LFS), the labour force on the Island continues to expand, up 0.7 per cent on a year-to-date basis through October, to average 81,700 persons. The participation rate has averaged 67.8 per cent, down 0.3 percentage points from the same period in 2011, where it averaged 68.1 per cent. Prince Edward Island had the fourth highest participation rate amongst provinces behind only Alberta, Saskatchewan and Manitoba. Labour force survey estimates of average weekly wages indicate that average weekly wages have increased 3.9 per cent on a year-to-date basis through October. Gains were recorded in both full and part-time work, up 4.0 and 6.1 per cent respectively. Gains were also recorded in both the goods producing industries, and in the service producing industries, up 6.8 and 3.1 per cent respectively. Average weekly wages increased 3.3 per cent in Canada as a whole over this time period. Retail Sales and Motor Vehicle Sales The total value of seasonally adjusted retail sales increased 4.5 per cent on a year-to-date basis through September. Within the region, retail sales have been strong on Prince Edward Island, and Newfoundland and Labrador (growing 4.9 per cent), while sales have been slower in Nova Scotia, and New Brunswick, growing 1.2 and 0.4 per cent respectively. Nationally retail sales have increased 3.1 per cent. Prince Edward Island has seen increased sales across all components of retail sales, with the exception of health and personal care stores, which have declined 2.8 per cent over the time period. Sales at food and beverage stores - the largest component of retail sales - increased 5.8 per cent on an unadjusted basis. Sales at gasoline stations have increased 0.6 per cent year-to-date. The sale of new motor vehicles increased 16.3 per cent on a year-to-date basis through September. During the same time, the value of new motor vehicles sold increased 14.1 per cent. Nationally, the sale of new motor vehicles increased 7.0 per cent, while the value of those vehicles increased 6.0 per cent. Prince Edward Island Fall Economic Update November

8 Consumer Prices The all-items consumer price index has increased 2.1 per cent year-to-date through October. Food costs have increased 4.3 per cent, while energy costs have increased 3.4 per cent. Shelter costs have increased 0.8 per cent over this period. Core inflation (the measure of inflation excluding volatile components such as food and energy) on the Island is 1.3 per cent year-to-date. Construction and Housing In 2011, total capital expenditure intentions surpassed $1 billion for the first time. Capital expenditure intentions in 2012 are expected to be $1.06 billion, a decrease of 1.9 per cent from This decline is a result of a 4.9 per cent decline in construction intentions. Intentions for machinery increased 2.9 per cent. On a seasonally adjusted basis, the value of non-residential investment has decreased 0.6 per cent through the first three quarters of 2012 as compared to the same period in The industrial and commercial components of non-residential investment posted gains of 39.4 and 10.4 per cent, but this was not enough to offset a decline in institutional permits of 25.7 per cent. National growth in non-residential construction has increased 0.6 per cent over the same period. Prince Edward Island Fall Economic Update November

9 The value of residential investment on the Island increased 28.4 per cent through the first half of 2012, as compared with the same time period in Gains in the single-detached market, up 11.0 per cent year-to-date, and in apartments, conversions, total acquisition costs and renovations were enough to offset declines across doubles, row housing and mobiles. In Canada as a whole, residential investment has increased 10.3 per cent over the same time period. Residential construction continues to perform well as housing starts are up 8.3 per cent through three quarters of 2012, as compared to the same period in Starts for single, and semi-detached homes are up 3.6 and 15.4 per cent respectively. Starts for apartments are down 2.2 per cent. However, starts for row houses have doubled compared to the same period last year. Canada Mortgage and Housing s (CMHC) forecast for 2012 starts is 800 units. According to CMHC, existing home sales are projected to decline 9.6 per cent in 2012, while the average price of resale homes is projected to increase by 4.0 per cent to $155,600. New housing prices continue to increase on Prince Edward Island, up 0.7 per cent year to date through September. Prince Edward Island Fall Economic Update November

10 Manufacturing Shipments and Exports The value of manufacturing shipments from Prince Edward Island has increase 6.6 per cent on a year to date basis through September, continuing the recovery in shipments that began in Food shipments, which have accounted for approximately 60 per cent of the Island s total shipment over the last ten years, advanced 5.0 per cent. Shipments of fish products advanced 9.8 per cent, while shipments of food excluding fish increased 3.8 per cent. Total shipments, excluding food have increased 8.9 per cent. The only notable decline in manufacturing shipments has been in printing and publishing, which, year-to-date has declined 11.0 per cent. The value of international exports from Prince Edward Island has increased 25.3 per cent on a year-to-date basis through September. This increase is broadly based across sectors. Traditional sectors such as frozen food manufacturing, and seafood product preparation and packaging have grown 17.3 and 17.6 per cent respectively. This is in contrast to 2011 where these sectors exerted negative pressure on exports. Newer sectors of the Island economy such as engine, turbine and power transmission equipment manufacturing and aerospace products and parts manufacturing have shown continued strong growth throughout this time period. Both of these sectors also posted strong growth in Notable decreases in exports over this period include vegetable and melon farming, down 31.2 per cent year-to-date and pharmaceutical and medicine manufacturing, down 5.7 per cent. Primary Industries Farming In 2011, total net farm income on Prince Edward Island was $30.9 million, an increase of 69.8 per cent from Net farm income on PEI in 2010 was $18.2 million. Realized net income was $43 million in 2011 compared to $0.2 million in Net cash income was $86 million in 2011, more than double the $40.1 million recorded in This increase was the result of a $69.4 million increase in farm cash receipts combined with a $24.1 million increase in total operating expenses after rebates. This was the most net cash income recorded since Prince Edward Island s farm cash receipts for the first three quarters of 2012 totalled $358.3 million, an increase of 0.1 per cent from the same period in 2011, and a new all-time high. This compares to a 6.1 per cent increase in farm cash receipts for Canada as a whole. Higher farm cash receipts through the first three quarters of 2012 were largely a result of an increase in potato prices. Potato receipts increased from $198.5 million through the first three quarters of 2011, to $201.3 million during the same period in 2012, an increase of 1.4 per cent. Soybean receipts increased 58 per cent between the first three quarters of 2011 and the first three quarters of At $8.8 million, it is the second largest crop by value on the Island. Receipts for all crops totalled $237.6 million, an increase of 2.7 per cent from There were 89,500 acres of potatoes planted on Prince Edward Island in 2012, an increase of 3,500 acres from Due to good harvest conditions, only 2.2 per cent of the crop was not harvested. Farmers produced 1,131,188 tonnes of potatoes in 2012, up 1.7 per cent from Dry weather through the summer resulted in smaller yields for some early season varieties of potato, but rains later in the fall have meant that the yield for later varieties of potato was better than was expected part way through the season. Prince Edward Island Fall Economic Update November

11 Livestock receipts totalled $105 million, a 2.4 per cent increase compared to the same period in Dairy product receipts for the first three quarters of 2012, totalling $56.1 million, increased by 1.3 per cent over the same period in Hog receipts increased by 0.8 per cent to total $11.5 million. Cattle receipts decreased 15.5 per cent to $12.5 million, while egg receipts declined 2.2 per cent to $3.7 million over this time period. Total receipts from direct payments fell to $15.7 million dollars through the first three quarters of 2012, compared to the same period in 2011, a drop of 34.4 per cent. Absent receipts from direct payments, receipts increased 2.6 per cent through the first three quarters of Fishing The landed value of the spring lobster fishery increased from $67 million in 2011, to over $101 million in Lobster accounts for approximately sixty per cent of the landed value of the fishery on Prince Edward Island. Tourism On a year-to-date basis through September, bridge traffic to the Island has decreased 0.2 per cent, air traffic has increased 5.9 per cent, while ferry traffic to the Island has increased 2.4 per cent. Motor coach traffic has decreased 11.1 per cent year-to-date. The 2012 cruise ship season is projected to be the largest the Island has ever seen. With 57 ships and 115,195 passengers and crew scheduled to visit the Island this season, this is an increase of 18 ships, or 46 per cent, and a 28 per cent increase in the number of projected passengers. Accommodation data supplied by the Department of Tourism and Culture show that room night s sold have decreased 1.6 cent on a year-to-date basis through September. However, camping has fared well this year, likely due to the long stretches of clear weather experienced throughout the main tourism season. Site night s sold have increased 4.3 per cent. Taken together, total night s sold are up marginally compared to the same period in 2011, up 0.3 per cent. On a seasonally adjusted basis, sales at food services and drinking places increased 6.3 per cent on a year-to-date basis through August. Nationally, sales at food services and drinking places advanced 4.9 per cent over this time period. Population As of July 1, 2012, Prince Edward Island s population is estimated to be 146,105. This represents a yearly increase of 410 persons and a 0.3 per cent annual growth rate. The majority of the growth for PEI can be attributed to international migration. During this period 1,379 international immigrants came to the province. At a rate of 9.5 per thousand, the province posted the third highest immigration rate in the country behind Manitoba and Saskatchewan. The immigration rate for Canada was 7.5 per thousand. The number of international immigrants coming to PEI in 2011/12 decreased 47.1 per cent compared to the previous year. This was the first decrease in immigration since Prince Edward Island lost population to net inter-provincial migration as a total of 2,901 inter-provincial migrants came to PEI in 2012, while 4,153 people left the province for other areas of Canada for a net outflow of 1,252 persons. There were 1,402 births and 1,344 deaths on Prince Edward Island from July 1, 2011 to June 30, 2012, resulting in natural growth (births minus deaths) of 76. This was the highest number of deaths for Prince Edward Island since the current record keeping system began in 1971, resulting in the lowest recorded number for natural growth. Prince Edward Island Fall Economic Update November

12 Prince Edward Island Fall Economic Update November

13 Outlook 2013 Due to the industrial mix found on Prince Edward Island, and strong domestic demand, the economic situation on the Island has been more stable compared to other parts of the country. Though many of the downside risks identified in previous reports have materialized, it is not expected that the world economy will return to recession, though substantially slower growth than initially thought will persist throughout advanced and emerging economies. Prince Edward Island is not immune from these external factors, and will be indirectly affected. Consequently, the economic outlook for 2012 and 2013 is that growth will be moderate. Private sector forecasts for Prince Edward Island for 2012 range from 1.1 to 1.8 per cent, while forecasts for 2013 range from a low of 1.4 per cent to a high of 1.9 per cent. Employment growth is expected to moderate through the end of 2012 and into Federal and provincial job reductions in the near term are projected to limit growth in overall employment. Housing starts and resale activity are expected to moderate further in According to CMHC, starts are projected to decline to 710 units, or by 11.3 per cent in 2013, while resale activity will decline by 5.5 per cent to 1,300 units. Immigration levels experienced a falling back from recent heights in 2012 as changes to the provincial nominee program begin to take effect. Immigration in 2013 is projected to be approximately 1,100 persons higher than the historical average but lower than recent years. The province s primary industries and manufacturing sectors are expected to contribute positively to growth through the end of 2012 and into Capital spending will return to historic levels in 2013 due to the conclusion of the provincial stimulus program, though several private and public sector projects should continue to provide support to the island construction industry through The winning bid by the Irving shipyard in Halifax in securing a $25 billion contract to construct the next generation of Canadian naval vessels could have positive employment implications for the Georgetown shipyard. Steps toward the resolution of the fiscal issues in the United States and Europe could provide upside risk to the forecast by improving market conditions and restoring confidence in the economy. A sustained lower value for the Canadian dollar could provide some relief to exporters currently struggling with high export costs. However, a further deterioration in either Europe or the United States could substantially weaken growth prospects going forward on a global basis. Prince Edward Island Fall Economic Update November